Morning Forex Fundamental: EUR

Morning Forex Fundamental: EUR

'The latest indicators are consistent with gradual improvement: the decline in output should come to a halt in the coming months. The downside risks to this scenario are compounded by investors' concern about possible political instability.' - Ignazio Visco, Governor of Bank of Italy

Italy, Europe's third largest economy, is still the only member of the G7 world-leading economy that is expected to contract in 2013. A report by the national statistics institute Istat showed Italian gross domestic product contracted 0.3% in the second quarter, since increase in exports failed to offset a continuous slump in domestic demand, as consumers are reluctant to increase spending amid the longest recession since World War II. That was exactly the same figure as reported in the first quarter, while on a yearly basis the economy shrank 2.1%, below analysts' expectations of a 2.0% contraction. The main drag on the economy came from households, with consumer spending falling 0.4%, offsetting a 1.2% advance in sales abroad.

Despite eight consecutive quarters of contraction, mood amid Italian executives and household improved slightly in August. The main reason behind it was increased industrial output, while efforts by Italian Prime Minister Enrico Letta to revive the economy made their contribution as well. Overall, after more than two years of strict austerity measures aimed at fighting a sovereign debt crisis, the whole region still remains vulnerable to financial, debt and banking concerns. While Italy is still suffering from the recession, other major European countries are showing signs of recovery. Although this year will not be Italy's year, as the economy is expected to contract 1.8%, there are some hopes of economic strength in 2014.